TOPIC-001 / CHAPTER 04

Asset quality, liabilities and off-balance-sheet obligations

Book assets are not realisable value, and booked liabilities may not cover all obligations. An acquisition must identify the funding and tail risk truly assumed.

TOPIC-001-CH04V1.0PUBLIC FULL CHAPTER2026.07.30

DECISIONS CHANGED

  1. 01

    Which book assets should be excluded or discounted

  2. 02

    Which debt, guarantees, repurchase, tax and performance obligations change true consideration

  3. 03

    Whether tail risk requires repricing, escrow, indemnity, conditions or exit

01

Re-read assets through recoverability

Cash, receivables, inventory, fixed assets, construction, investments and intangibles cannot be judged by book classification alone. Test title, use, realisation path, future funding and recoverable amount.

If value requires continuing funding, a specific permit or related-party cooperation, those conditions belong inside the transaction assumption.

02

Build the complete debt and obligation schedule

Interest-bearing debt is only part of the funding burden. Trade payables, overdue payroll and tax, factoring, leases, shareholder loans, guarantees, repurchases, litigation, committed capex and performance obligations may all consume cash after control transfers.

Review amount, maturity, triggers, priority, collateral and cross-default so enterprise value can be bridged correctly to equity value and true consideration.

03

Put tail risk into the transaction

Finding an obligation is not the end. Quantifiable risk enters price or net debt; uncertain timing may require escrow, instalments or closing adjustment; attributable but unresolved risk may require indemnity and recourse.

Where risk cannot be bounded, responsible parties cannot perform, or key title and cash sources cannot be proved, terms may not repair the deal. Stopping, narrowing scope or preserving options may create more value.

METHOD CONNECTION

MTH-0002 · Full M&A Capability ChainMTH-0006 · Full Value Bridge

PUBLIC SOURCES

ART-FMA-001 · Howard Hou: Financial Analysis in M&A